Unemployment Rises as Pay Growth Slows Again
The UK’s unemployment rate has risen to 4.3% for the quarter ending in September, up from 4% in the previous three months, according to the Office for National Statistics (ONS). However, pay growth has also decelerated, raising concerns about economic stability.
The ONS noted a moderation in wage growth, with average earnings excluding bonuses increasing at an annual rate of 4.8% from July to September—the slowest rate in over two years. Despite this, wage growth still outpaces inflation, currently at 1.7%, which is below the Bank of England’s target of 2%.
Vacancies have continued to decline for over two years, although they remain slightly above pre-pandemic levels. Liz McKeown, director of economic statistics at the ONS, described the current situation as a “continued easing of the labour market.” However, recent limitations in the ONS’s Labour Force Survey, due to a smaller respondent pool, have raised questions about the reliability of these figures.
The Bank of England closely monitors labour market trends to guide interest rate decisions. Last week, it implemented a rate cut, its second this year, amid inflation that remains under the 2% benchmark. The ONS has acknowledged the data’s impact on central bank decisions, pledging improvements to data accuracy.
Economists and business groups have raised additional concerns over rising employment costs following measures in Chancellor Rachel Reeves’ recent Budget, which includes increased National Insurance contributions (NICs) and a higher minimum wage effective April. Supermarkets and high-street brands, such as Asda, Sainsbury’s, and Marks & Spencer, have noted that these policies could further strain hiring and limit wage increases, potentially leading to higher prices for consumers.
Alexandra Hall-Chen, principal policy adviser for employment at the Institute of Directors, commented that the Employment Rights Bill and new tax measures are putting “serious pressure on hiring intentions,” which may stifle job creation. “The government needs to urgently address business concerns about the increased risks and costs of employing staff,” she warned.
Wendy Jones-Blackett, a small business owner from Chapel Allerton, Leeds, told the BBC her firm faces rising supplier costs and may struggle to offer pay increases despite wanting to retain talent. “We want to reward staff but must balance that with the realities of higher expenses,” she said.
Meanwhile, a recent survey by the Recruitment and Employment Confederation and KPMG reported a consecutive 12-month decline in job vacancies, signalling reduced demand for new hires. Rob Wood, chief UK economist at Pantheon Macroeconomics, suggested that the Bank of England will likely focus on overall trends rather than individual data fluctuations as it assesses its next steps on interest rates.
In response to ongoing concerns about the cost of living, Work and Pensions Secretary Liz Kendall highlighted an increase in the National Living Wage, benefiting the lowest-paid workers beginning in April, as part of efforts to improve living standards.
